I’m not especially enamored with gold or gold miners, so I initially was reluctant to look very deep into the name. What I am interested in, though, are special situations and stocks that have unique characteristics, especially when they are potentially uncorrelated to the overall markets. As I looked deeper into Aberdeen International, I got more interested. Ultimately I ended up opening a position.

Aberdeen trades on the Pink Sheets under ticker AABVF and on the Toronto Stock Exchange under ticker AAB. They’re a Canadian-based investment company that provides capital to early-stage miners. They often see them through the IPO process. They have significant exposure to gold miners, along with some other companies in the resource space.

All of this is great, but I wouldn’t have been interested if not for the stock trading at a significant discount to the assets. Aberdeen is trading for less than 50% of its current cash and investments with no debt. It’s also trading for less than 40% of its latest reported NAV. That NAV has almost surely declined, but we’re still looking at a trading price significantly below its NAV. AABVF is trading at about 40 (U.S.) cents.

The publicly traded investments were at about 46 (U.S.) cents as of April 30, 2012. Note that in the company’s press releases, they use Canadian dollars. I’ve translated the amounts here to U.S. dollar since I’m trading the U.S.-listed Pink Sheet shares.

Although they reported their cash and publicly traded investments as of April 30, 2012, their latest reported NAV is for Jan. 31 2012. They have it listed at $1.08. A lot has happened since late January, so that number is going to be much different next time. For one, they recently sold a royalty stream for $11.5 million in cash and additional $9.4 million in convertible debt. That just closed on June 1, so those figures aren’t included in any of the amounts reported by the company. I’ve got that sale adding 23 cents per share (U.S.) to cash their cash, investments and loans.

The company reported about 68 cents per share in cash and investments on 4/30/12, so we can add that 23 cents to that figure, coming up with 91 cents. At the same time, that sale will decrease an undetermined portion of their NAV. We won’t get the exact figures until June 15. So, we’ve got 91 cents of cash and investments, making today’s stock price trading for about 44% of that. There are additional assets that make up the NAV. I’m not going to attempt to calculate them precisely because with the already huge discount, it doesn’t really matter right now. Also, the company will tell us in about a week anyway. That figure will be roughly around 10 cents.

Why the huge discount? That’s a good question and I think there are a few reasons I can identify, and probably other reasons I can’t. First, these early-stage miners are risky. The volatility in them scares some people, I think, and that’s reflected in a company like Aberdeen where some of these investments are private and we don’t know the exact value of them on a day-to-day basis. At the same time, most of Aberdeen’s holdings are public.

I think there’s also a concern about the structure of Aberdeen. Naturally there are a lot of related party transactions. Bharti and other board members sit on the boards of their investments. In the context of venture capitalists, this is natural. Here, there can sometimes be conflicts. Some of Aberdeen’s investment companies owe Aberdeen a great deal of money because of loan defaults. There potentially can be conflicts when Bharti and others are on the boards of those junior companies. There are also potential conflicts between F&M and Aberdeen. Some discount because of that is justified… to a degree.

There is also an issue of some warrants that would have diluted Aberdeen shareholders had the stock traded above $1. However, those warrants will expire worthless on 6/6/12.

Finally, it’s a small company, not followed by large investors. And, it’s based in Canada. I don’t think a lot of investors know about Aberdeen, and I think some investors who come across it are turned off by the structure of the company. It takes a little bit of work to drill down, and I don’t think most people are willing to take the time to go through the filings and presentations.

Aberdeen has made it a priority to reduce this discount. They have been buying back shares, though Canada has some buyback limitations that make it a bit difficult to make large open market purchases. In the first quarter they did buy back about $100,000 worth of shares at around 55 cents per share. This refers to AAB. Last year they bought back $1.9 million worth of shares. The market cap right now is around $40 million, so that’s not an insignificant figure. I’ve read in a few places that they’re interested in buying back blocks of shares if any bigger investor wants to sell them. On the negative side, they also issued about 1 million shares of stock options last year.

Aberdeen also has a dividend that currently yields about 4.5%. Management and directors own about 15% of shares.

I wouldn’t be interested in this company at 90% of NAV, but it seems like a steal at less than 50% of cash and investments of 91 cents. The discount isn’t justified, in my opinion, because Aberdeen is not simply a holding company. They are more akin to a venture capital firm where they are clearly helping these early stage miners get access to capital and, eventually, enter the public markets. They are adding a tremendous amount of value to their investments. Aberdeen also has been able to turn some failed investments into winners. This royalty stream they recently sold that netted $40 million was the result of a busted investment from years ago that they were able to parlay into an attractive asset.

Old gold miners are volatile, especially early-stage ones, and it’s difficult to determine what their true value should be, but with Aberdeen you have the opportunity to participate in the upside while also being protected with this huge discount.

Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC.
Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.